• Attractive government subsidies for your retirement

• Improved financial security in retirement

• Protection of your pension and standard of living

• Exempt from deductions when receiving citizen’s allowance (Bürgergeld) 

The company pension scheme (bAV) allows you to build an additional retirement income with government support through your employer.

It can be funded either by the employer or by you (the employee) by sacrificing a portion of your gross salary in favor of retirement savings. In most cases, both the employer and the employee contribute to the pension plan.

Regardless of who funds the contributions, you benefit from lower taxes and social security contributions.

During the savings phase, contributions to the company pension scheme are tax-free and, to a certain extent, exempt from social security contributions. However, the pension payments in retirement are fully taxable. 

Additionally, those with statutory health insurance must pay contributions to health and long-term care insurance.

With a company pension scheme (bAV) – also known as an occupational pension – you build an additional retirement income through your employer. 

If the employer does not offer this as a benefit in addition to the salary, employees usually have the option of salary conversion (Entgeltumwandlung). 

This means the employer transfers the pension contributions from your gross salary to the selected pension provider. Taxes and social security contributions are calculated and deducted from the reduced salary. 

This results in lower taxes and social security contributions, and the government supports you in saving for retirement.

There are five different implementation methods available:

• Direct insurance
• Pension fund
• Pension plan
• Support fund
• Direct promise

The first three methods are referred to as the "insurance-based implementation methods." This term will be used further below. In principle, the employer chooses which implementation method is offered in the company. 

Under the legal right to salary conversion, employees have the right to request direct insurance if the employer does not offer a pension fund or pension plan.

The primary purpose of the company pension scheme (bAV) is to secure the standard of living in retirement and supplement the statutory pension payments. Additionally, the following protections are possible through the company pension scheme:

• Benefits of the company pension scheme in case of occupational disability

• Protection for survivors through the company pension scheme. Survivors include spouses, former spouses, children eligible for child benefits, life partners, and specifically named cohabiting partners.

The benefits of the company pension scheme are generally paid as a pension but can also be paid as a lump sum, depending on the situation.

The idea of a company pension to supplement retirement benefits dates back to before Bismarck's social reforms. 

However, the right to a company pension, at least through salary conversion, was granted to employees only since January 1, 2002. 

This means that employers must offer employees – including those with minor employment (subject to pension insurance) – the option to use salary conversion to enhance their retirement savings. 

First, this refers to the tax- and social security-supported company pension scheme (bAV). Freelancers and business owners cannot set up a company pension scheme (bAV) for themselves. 

If there is a fixed, long-term contractual relationship, a company pension can, in some cases, be arranged through the client. Partners in a partnership cannot receive a company pension scheme.

However, co-owners of a corporation can receive a company pension scheme through the company, provided they work within the business. For example, shareholders who are managing directors. 

For managing directors and executives of a corporation, setting up a company pension scheme is quite common.

Civil servants cannot use the company pension scheme as part of their civil service employment. They receive a pension (ruhegehalt) that is higher than the statutory pension. 

However, the situation is different for employees in the public sector. They receive a company pension scheme as part of additional benefits. 

Additionally, various collective agreements in this sector regulate the options for salary conversion for public sector employees.

The company pension scheme (bAV) is almost always worthwhile, especially since 2019. For all contracts signed since then, the employer must contribute 15% of the pension contribution as a subsidy if the conversion is done through insurance-based methods and the employer saves social security contributions as a result. 

Thanks to salary conversion, the company saves on the employer’s share of social security contributions. This advantage must be passed on to the employee. Even employees with older contracts benefit: these rules also apply to them starting in 2022. 

If the employer pays the contributions entirely, offers higher subsidies, or can negotiate special contract terms with the pension provider, you can benefit even more.

Employees whose income exceeds the contribution assessment limit for pension insurance no longer save social security contributions with the company pension scheme. 

They benefit from tax savings, and in some cases, from voluntary employer contributions, simplified access to the pension scheme, and special contribution terms. 

Therefore, it is important to carefully consider on a case-by-case basis whether the company pension scheme or a private pension insurance is more advantageous. 

With private pension insurance, only the return portion is taxed later. We would be happy to advise you on this.

Contributions to the insurance-based methods of the company pension scheme are tax-free up to 8% of the contribution assessment limit (BBG) of the statutory pension insurance (BBG West). In 2024, this amounts to 604 euros per month (7,248 euros per year).

For employer-financed contributions for low earners, an additional 960 euros per year remain tax-free.

Contributions to the support fund and direct commitments as part of the company pension scheme are fully tax-free.

Social security contributions are exempt for the insurance-based methods of the company pension scheme up to 4% of the BBG DRV-West. For 2024, this is 302 euros per month (3,624 euros per year).

Employer-financed contributions to the support fund and direct commitments for the company pension scheme are fully exempt from social security contributions. In the case of salary conversion, this exemption applies up to 4% of the BBG DRV-West. 

For 2024, this is also 302 euros per month (3,624 euros per year). 

Pensioners who are in statutory health and long-term care insurance must pay contributions on their company pension.

In health insurance, there is an exemption amount of 169.75 euros (as of 2023) for pensioners who are compulsorily insured. If the company pension exceeds this amount, health insurance contributions will only apply to the portion exceeding the exemption limit.

In long-term care insurance, there is the same exemption amount of 169.75 euros (as of 2023) for pensioners who are compulsorily insured. If the company pension exceeds this amount, long-term care insurance contributions will be due on the entire pension, not just the portion exceeding the exemption limit.

Privately insured individuals are not affected by this, as their contributions are independent of income.

Employer-financed pensions become non-forfeitable after three years and when you are at least 21 years old. This means they can no longer be revoked when you leave the company. The employer can only make adjustments to these rules in your favor.

Salary conversion plans are by law immediately non-forfeitable from the start. With such a non-forfeitable pension entitlement, you have the following options:

• The new employer takes over the pension and continues it.

• You continue the insurance yourself (not possible for support funds and direct commitments as part of the company pension scheme).

• You make the contract non-contributory or receive an entitlement to the benefit from your previous employer.